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DIS Veteran

And yes, my emergency fund has always been in a boring savings account. My DH feels most comfortable with a large cash buffer (at least $5-10k) so we always have at least that much, sometimes more, laying around. Sometimes I grumble about being more efficient and putting the money to work but it helps him sleep at night. Just started playing with chasing high interest savings accounts. Can be rather lucrative.

DIS Veteran

And yes, my emergency fund has always been in a boring savings account. My DH feels most comfortable with a large cash buffer (at least $5-10k) so we always have at least that much, sometimes more, laying around. Sometimes I grumble about being more efficient and putting the money to work but it helps him sleep at night. Just started playing with chasing high interest savings accounts. Can be rather lucrative.

I agree, the more accessible the better for the immediate emergency funds. We hold that money in Amex and Discover savings accounts that are paying around 2%. We also keep a few thousand in our primary bank for same day access if needed.

I’d be curious to hear what high interest accounts folks are utilizing. I used to have about $15k spread across 3 Mango Savings accounts that paid out just shy of 6%. You had to jump through some hoops with direct deposits but it was worth it. Unfortunately the accounts closed so it’s back to bank bonus signs ups and basic 2% savings for now.

Dis Veteran

I haven't really read up on this next part, but apparently you can possibly avoid even Federal taxes on the interest if used for a qualifying higher education expense. There are income limitations (as of 2017 around $150K for married filing jointly) and the bond has to be in the name of a parent if intended to be used for a child (cannot be in the child's name). More here. It looks like it’s also possible to roll into a 529 and avoid taxes under certain conditions.

Dang I have Series EE savings bonds and have referenced the page you linked and never noticed I bonds being included for college. I thought I would cash in my EE's for the kid college to get the tax exemption, but dang they are earning 4% interest so I think I'm going to forgo that and let them stay till maturity in 2030.

DIS Veteran

Dang I have Series EE savings bonds and have referenced the page you linked and never noticed I bonds being included for college. I thought I would cash in my EE's for the kid college to get the tax exemption, but dang they are earning 4% interest so I think I'm going to forgo that and let them stay till maturity in 2030.

DIS Veteran

I agree, the more accessible the better for the immediate emergency funds. We hold that money in Amex and Discover savings accounts that are paying around 2%. We also keep a few thousand in our primary bank for same day access if needed.

I’d be curious to hear what high interest accounts folks are utilizing. I used to have about $15k spread across 3 Mango Savings accounts that paid out just shy of 6%. You had to jump through some hoops with direct deposits but it was worth it. Unfortunately the accounts closed so it’s back to bank bonus signs ups and basic 2% savings for now.

We have ours in a high interest checking account at a local bank. It earns 2.07% on up to $30,000. You have a jump through a few hoops - 10 debit transactions each month, at least one direct deposit each month and online only statements. We have 2 accounts and our balances between the 2 accounts usually hovers around $58-$60,000. One of them we use as our main checking account and the other I just put 10 small debit transactions to get the interest.

Mouseketeer

Just don't invest your emergency in a rental property lol. While "nightmare" is probably too strong of a word, I now realize what people mean when they say things hit you the most when your broke. Granted we're "broke" as in our checking accounts are low, but still. We have $118k wrapped up in cash in a rental right now that's taking FOREVER to finish and anything that could go wrong, has. Our heads are above water, but just barely. It's been a humbling experience to say the least though.....eating beans and rice to balance everything out. I'm going for a no spend June to help to budget but whew.....not exactly easy with 4 kids in summer mode. Amusement park passes and pool passes are paid for though, boat is full on gas, just need to pack some food and enjoy those things!

The 90's!! The company I first started working for out of college had a program where I could buy savings bonds and have the money auto deducted out of my pay. I did that for as many years as they had the program, not long actually, it stopped after a while. Looking back, I wish I could've afforded to buy more!! I only deducted $25/pay so got a $100 bond every month (paid twice month).

Mouseketeer

....and for my birthday this year we're going to go bid on another property at Sheriff's sale. It's 4 houses down literally from the one we're just about finished with. 976 sq ft 2 bed/2 bath on .5 acre lot. Starting bid is $53k, but hoping we can get for under $65k. Fixed up it would be worth around $120-$130k. Rent easily for $1,000/mo. Paid off it would generate $840/mo. That would put us at around $2500/mo profit on our 3 properties. Passive income here we come!

DIS Veteran

....and for my birthday this year we're going to go bid on another property at Sheriff's sale. It's 4 houses down literally from the one we're just about finished with. 976 sq ft 2 bed/2 bath on .5 acre lot. Starting bid is $53k, but hoping we can get for under $65k. Fixed up it would be worth around $120-$130k. Rent easily for $1,000/mo. Paid off it would generate $840/mo. That would put us at around $2500/mo profit on our 3 properties. Passive income here we come!

Thats terrific! I've never had luck at those sales. People who want to live in the houses tend to bid them up higher than I'm willing to pay. I finally gave up!

We've been renting properties for 18 years now. We're sick of it really! However, we've decided to keep just 1 house in retirement. Even with repairs/taxes/insurance, the income surpasses what we'd have if we sold it and invested the funds. Also, its a nice diversification.

Speaking of - getting ready to head over to the rental now and paint paint PAINT . . .

DIS Veteran

Just don't invest your emergency in a rental property lol. While "nightmare" is probably too strong of a word, I now realize what people mean when they say things hit you the most when your broke. Granted we're "broke" as in our checking accounts are low, but still. We have $118k wrapped up in cash in a rental right now that's taking FOREVER to finish and anything that could go wrong, has. Our heads are above water, but just barely. It's been a humbling experience to say the least though.....eating beans and rice to balance everything out. I'm going for a no spend June to help to budget but whew.....not exactly easy with 4 kids in summer mode. Amusement park passes and pool passes are paid for though, boat is full on gas, just need to pack some food and enjoy those things!

DIS Veteran

Just don't invest your emergency in a rental property lol. While "nightmare" is probably too strong of a word, I now realize what people mean when they say things hit you the most when your broke. Granted we're "broke" as in our checking accounts are low, but still. We have $118k wrapped up in cash in a rental right now that's taking FOREVER to finish and anything that could go wrong, has. Our heads are above water, but just barely. It's been a humbling experience to say the least though.....eating beans and rice to balance everything out. I'm going for a no spend June to help to budget but whew.....not exactly easy with 4 kids in summer mode. Amusement park passes and pool passes are paid for though, boat is full on gas, just need to pack some food and enjoy those things!

No kidding - rental properties are not for the faint of heart. We have one, but it is rented to long-term tenants we know well - we don't make a lot of money on it, so it is more of an offset to our property taxes than really an income generator we can count on. Not sure we will be looking to add any more properties.

I will say that the transition from all investments being in retirement advantaged accounts (401k, IRA, HSA, etc.) to liquid investing is a difficult one. For some reason, I've seen many speak to how maxing out their 401k, IRA, HSA, etc. was easy but once all of those were maxed each year and there was still money left over it's slightly harder to invest that next chunk. I can't really explain why, but I'd agree. That's why I'm eradicating our mortgage now vs. going into stocks. Once the mortgage is gone, I'll have no other option though but to start it on the liquid side too - I think there's just a psychological component to it.

I just went ahead and opened a Vanguard account (helloooo VTSAX). I decided that it was time we started a little direct investing, in addition to our retirement stuff and college savings stuff. I've been toying with the idea for AGES - as you said, its a hard leap to make, and decided that I could do it in a small way without depleting our emergency fund (sitting in a Discover savings account getting 2%ish) or messing with college savings (in a 529 for the little one, in CDs for my high-schooler). Any money I think I might need within the next 5 years is not getting invested in anything with risk, but my 10 year risk tolerance is pretty high. Now that I've got the account set up, I can sprinkle a little additional money into the liquid investment account when I allocate my "spare" income between our savings vehicles.

Not paying down my mortgage first - we have no plans to retire where we are now, and our property taxes are more than our mortgage/interest payment, so its not like our housing costs would go to nothing if we did it. Without the plan to stay "forever," the psychological benefit of having it paid off is less compelling. I think that over time (say, 10 years) investing in the market will be more lucrative than investing in our house - betting that the market will beat our super low mortgage interest rate.

DIS Veteran

There's a limit of $10K per SSN per year that you can purchase online (including for minors).

As with US Treasury bonds, the interest is not taxable at the State level (you pay Federal taxes on redemption). You can hold up to 30 years which mean you could time your withdrawal during a year with a low tax rate.

I haven't really read up on this next part, but apparently you can possibly avoid even Federal taxes on the interest if used for a qualifying higher education expense. There are income limitations (as of 2017 around $150K for married filing jointly) and the bond has to be in the name of a parent if intended to be used for a child (cannot be in the child's name). More here. It looks like it’s also possible to roll into a 529 and avoid taxes under certain conditions.

I purchased I-bonds about 10 years ago with exactly that intent, and plan on cashing it into the 529 when I need to. I also bought $5K in DD's name, not realizing that she wouldn't get the same tax treatment for QEE, oops. I'm starting to learn about college finances, and realize that I need to do a lot of shifting of positions this year for the FAFSA application because of the two year lookback period, and I think I need to be cautious of what funds are put under her name as those assets are applied to the EFC at a higher % than parental assets. (20% vs 12%) The rate has been so paltry on the I-bonds though, I don't think it was the best choice (hindsight being 20/20).

Mouseketeer

Thats terrific! I've never had luck at those sales. People who want to live in the houses tend to bid them up higher than I'm willing to pay. I finally gave up!

We've been renting properties for 18 years now. We're sick of it really! However, we've decided to keep just 1 house in retirement. Even with repairs/taxes/insurance, the income surpasses what we'd have if we sold it and invested the funds. Also, its a nice diversification.

Speaking of - getting ready to head over to the rental now and paint paint PAINT . . .

Hubby went to his first auction in dec, granted it was the Monday of Christmas week and all but one house had been cancelled. But only 3 people remained. The “professional investor” dropped out at $55k, then him and this older man went back in forth, $500 increments to $83k. He said it was exhausting but we won. It went to court though for 3 months, as it was sold three times, but it really went as well as expected. The owner even called, left a letter stating anything left was now ours, and left the keys under the mat. It was a complete gut but with the crazy appreciation in our area (not because of the economy) it’ll work out great.

Soooo if we get it, we get it. But most people who want to live in it don’t have access to cash to pay in full. And we live in a little rural niche where people are dying to rent for the awesome schools, so whatever, I’ll ride it out. We’ve had 6 or 7 properties now since 2012 and only one bad renter that wasn’t even THAT bad. We always put in everything new so there isn’t any problems and are really picky on renters. We do high end so people would qualify to buy but choose to rent. Works for us! It’s just the initial remodel with 4 kids and full time jobs is EXHASTING. But we started with $12k and it’s grown to $280k in 7 yrs so I’m IN!

DIS Veteran

College savings question. When we previously met with a financial advisor at our local credit union, he recommended we utilize Roth IRAs instead of a 529 account. We’ve been doing that since DD (8) was born.

I know that for us the Roth is more flexible and we’ll have enough in contributions alone that we wouldn’t need to withdraw any earning prior to DH reaching 59 1/2 (about halfway into DD’s college years).

Our state does offer up to a $10k deduction from our state taxes each year for 529 savings plan contributions. It just never seemed attractive enough to forgo the Roth. Now that we’re at a point where we could continue to max out our Roths and put maybe another $5K/yr or so into a 529, is that something we should look into?

It’s basically a carry on to previous conversations where we discussed the order of savings (401k up to employer matching, pay off any debt, Roth IRA, max out 401k, payoff mortgage, etc.).

I’ll of course do research and reading on our specific situation but would also love to hear from those in this group.

DIS Veteran

I purchased I-bonds about 10 years ago with exactly that intent, and plan on cashing it into the 529 when I need to. I also bought $5K in DD's name, not realizing that she wouldn't get the same tax treatment for QEE, oops. I'm starting to learn about college finances, and realize that I need to do a lot of shifting of positions this year for the FAFSA application because of the two year lookback period, and I think I need to be cautious of what funds are put under her name as those assets are applied to the EFC at a higher % than parental assets. (20% vs 12%) The rate has been so paltry on the I-bonds though, I don't think it was the best choice (hindsight being 20/20).

Having been through college applications with four kids, my thought here is that FAFSA is only part of the equation. It gets a lot more complicated because many colleges require additional information beyond the FAFSA and will adjust their need-based aid offers accordingly. For my kids, merit aid awards were far more influential in determining where it made financial sense for them to attend. Another thought is that colleges consider loans to be need-based aid, and we were very much against our kids taking out loans to attend undergrad.

DIS Veteran

Having been through college applications with four kids, my thought here is that FAFSA is only part of the equation. It gets a lot more complicated because many colleges require additional information beyond the FAFSA and will adjust their need-based aid offers accordingly. For my kids, merit aid awards were far more influential in determining where it made financial sense for them to attend. Another thought is that colleges consider loans to be need-based aid, and we were very much against our kids taking out loans to attend undergrad.

I agree. And with some schools requiring the CSS profile, I'm pretty certain she won't get need-based aid. I'm just hoping for some merit awards, although those are difficult to get as well. She is a high stats kid which should help with some schools.

DIS Veteran

I agree. And with some schools requiring the CSS profile, I'm pretty certain she won't get need-based aid. I'm just hoping for some merit awards, although those are difficult to get as well. She is a high stats kid which should help with some schools.

For merit aid, I found that I could roughly estimate my kids' eligibility by looking at a school's admissions data. Once my kid's stats were above the 75% measure, they could pretty much count on getting something. Some schools also list specific merit awards on their websites, with the requirements. I will also say, though, that for the smaller, liberal arts schools that my kids ended up getting the most aid from (and attending), there were quite a few surprises, so my advice is to apply to a lot of schools to make sure that you have some good choices by April. For example, one admissions officer just fell in love with my daughter's application (he hand-wrote on her acceptance letter, "I loved everything about your application!") -- not surprisingly, daughter ended up with a much larger merit award from this school than comparable schools, and to this day I really don't know what about her application made such an impression at this one school.

Another thing I learned the hard way with my first kid is don't let them get attached to any schools before you know what all of the options (with costs) will be. By the last kid, my mantra was, all schools have good and bad qualities. My goal was for us (especially him) to remain as neutral as possible about all of his applications until we had all of the information.

DIS Veteran

College savings question. When we previously met with a financial advisor at our local credit union, he recommended we utilize Roth IRAs instead of a 529 account. We’ve been doing that since DD (8) was born.

I know that for us the Roth is more flexible and we’ll have enough in contributions alone that we wouldn’t need to withdraw any earning prior to DH reaching 59 1/2 (about halfway into DD’s college years).

Our state does offer up to a $10k deduction from our state taxes each year for 529 savings plan contributions. It just never seemed attractive enough to forgo the Roth. Now that we’re at a point where we could continue to max out our Roths and put maybe another $5K/yr or so into a 529, is that something we should look into?

It’s basically a carry on to previous conversations where we discussed the order of savings (401k up to employer matching, pay off any debt, Roth IRA, max out 401k, payoff mortgage, etc.).

I’ll of course do research and reading on our specific situation but would also love to hear from those in this group.

Some people love 529s, some don't. Some states offer tax deductions for them, which can tip you towards them. Keep in mind that 529s count against you when awarding need-based aid, while retirement accounts aren't considered. If you aren't expecting need-based aid, it matters less. If you have multiple kids (and multiple 529s), they all count against the kid actually going to college (versus who's named as beneficiary.

Personally, I'm not such a fan of 529s, due to the fact that they have to be used for education only. That said, DD16 has one, which we'll spend on her college. Then, we'll self-fund the rest, plus kid #4. No need-based aid happening here, but there is the possibility for merit-based.

DIS Veteran

Some people love 529s, some don't. Some states offer tax deductions for them, which can tip you towards them. Keep in mind that 529s count against you when awarding need-based aid, while retirement accounts aren't considered. If you aren't expecting need-based aid, it matters less. If you have multiple kids (and multiple 529s), they all count against the kid actually going to college (versus who's named as beneficiary.

Personally, I'm not such a fan of 529s, due to the fact that they have to be used for education only. That said, DD16 has one, which we'll spend on her college. Then, we'll self-fund the rest, plus kid #4. No need-based aid happening here, but there is the possibility for merit-based.

To clarify for @bernina - they count against the kid going to college because the 529 balance is considered an asset of the parent (assuming the parent is the owner) vs the beneficiary. Good point about the retirement asset not counting against you for financial aid.

We ran out of 529 money a long time ago, so now we just fund the 529 a couple weeks before tuition is due just to save the 5.75% VA tax.

Since you can pull contributions from a Roth at any time without penalty, one possibility would be to initially fund the Roth. Then a few weeks before tuition is due, pull the funds and drop into the 529 account to get the state deduction. Any reason that wouldn't work?

DIS Veteran

Need based aid is off the table for us (if your kids are close together in age, need based may sometimes be possible even with a relatively high income/assets, but we won't ever have multiple college age kids so pretty sure need won't ever be a factor for us).

We do use a 529 - the state tax deduction is valuable to us, and we are planning to use it for our little one (so a long-ish time horizon for tax free growth), but like the flexibility of being able to switch it to our older one if we need to, depending what makes sense. I have to admit that we haven't fully explored the Roth options - by the time we had extra cash to consider post-tax investing ( fully funded our 401ks, but extra cash was going to daycare, private school, home renovations etc for a while there), our income was too high to do a straight Roth contribution, and I just haven't gotten organized to figure out back-door Roth options. Because college is now only a couple of years away, an immediate tax advantage makes sense for us. If you can do the roth-->529 thing, sounds like you can get the best of both worlds.